Investors warming to Facebook after IPO flop

After a dire stock market debut, Facebook has clawed back a large chunk of its losses as investors look past the flubbed initial public offering (IPO) and gradually warm to the leading social network.

Facebook shares were offered in May at US$38, and after an opening hours jump slid over the next two weeks to as low as US$25.52 on June 6.

However, since then the stock has risen more than 20 percent to Friday’s close at US$31.09.

Analyst views are mixed, but investors now seem focused on the potential for growth of the world’s biggest social network, which is to announce its first quarterly results as a public company on July 26.

Herman Leung of Susquehanna International Group said he sees shares rising to US$48 over the next 12 months as Facebook develops more ways to boost advertising and other revenues.

“I think Facebook is still a company that has a lot of opportunity for the business to expand, and the expansion opportunities have not been fully optimized,” Leung said.

“They have 900 million users, all are highly engaged, they all love the product, they all use the product,” he added.

Lou Kerner of the Social Internet Fund said he sees the stock heading to US$44 within the next 12 months “based on my expectation of revenue growth and margin expansion.”

Kerner said sentiment was hurt by missteps in the IPO process, and that the investment banks “misread interest in buying to flip with interest in buying to own, which was greatly magnified by NASDAQ’s massive mishandling of the opening and early trade flows.”

“All that said, over time, those mistakes will become increasingly irrelevant to the share price, as it will increasingly reflect Facebook’s execution,” Kerner said.

Investment banks involved in the IPO were permitted to issue their own research notes after a 40-day quiet period, and many were, not surprisingly, positive.

Morgan Stanley’s Scott Devitt set a US$38 price target and wrote Facebook “is uniquely positioned to leverage its large and highly engaged user base to monetize the mobile Internet.”